Luxury home sales lose their luster

During the oil boom, Houston became one of the hottest cities in the country for luxury homes.

Wealthy buyers, many flush with cash from the fracking frenzy, scooped up million-dollar mansions across the Bayou City.

Sales of homes priced $1 million and up grew by double digits each year between 2012 and 2014, according to the Texas Association of Realtors. At its zenith, Houston was ranked No. 5 and No. 6 among the hottest luxury home markets nationally by Coldwell Banker LLC and Redfin Corp., respectively.

“There was a time when luxury buyers were just buying anything,” said Cindy Burns, a Realtor with Martha Turner Sotheby’s International Realty. “If there was a front door, it sold.”

But then, oil prices plummeted. As energy companies laid off thousands of workers, economic uncertainty settled into the market and buyers began to pull back on discretionary purchases, including luxury homes.

“The buying frenzy in the luxury home market has certainly cooled,” said Amy Bernstein, founder and CEO of Houston-based Bernstein Realty. “Buyers are more cautious and they’re moving a little bit slower today.”

Houston’s gilded age of grandiose home sales is far from over, however.

Realtors sold a whopping 1,284 luxury homes in Houston between January and October of 2015, according to the Texas Association of Realtors. While that represents a 4.5 percent increase year over year, it’s a far cry from the 46 percent year-over-year increase Houston Realtors experienced in 2013.

Luxury home prices also have continued to climb despite the oil slump. The median price for a luxury home in Houston crept up half a percentage point to $1,395,000 in 2015. The average price per square foot inside a luxury home was $333, nearly three times that of a typical home in Houston, according to the Texas Association of Realtors.

However, there are signs Houston’s luxury home market is starting to slip amid the oil slump.

More luxury homes are hitting — and then sitting — on the Houston market. Realtors listed 1,390 luxury homes in Houston between January and October of 2015 — the most in the past three years, but by no means a glut of homes flooding the market, Realtors said. The average luxury home stayed on the market for 78 days, nearly a month longer than the average home in Houston.

“We’re getting more inventory right now, and it’s going to take a little bit longer to sell,” Burns said. “When you get more inventory, it becomes more choices for buyers.”

Buyers, however, are watching the market right now, waiting to see if there is a further slowdown in Houston’s economy before purchasing a luxury home. While energy executives may feel more secure in their positions, dual-income families at the management level may not feel as secure.

“There’s some trepidation,” Bernstein said. “A lot of luxury homebuyers are looking at their investment portfolios and not feeling quite as strong cashing out at this time and buying a luxury home. They’re saying, ‘We sure would love a newer, bigger home closer in, but at this point, until we feel a little more confident in our employment situation, we’ll stay put.’”

At the same time, corporate relocations have slowed in Houston as energy companies aren’t hiring new employees and moving around their work force. As a result, there are fewer corporate executives moving to Houston looking to buy a luxury home. This slowdown has affected the Bayou City’s suburban markets more than inner-city neighborhoods, where relocation activity in the medical sector is booming.

“We’re not seeing the relocation numbers we’ve seen in the past three years,” Bernstein said. “It’s a steady flow, but not a heavy flow.”

Realtor are now trying to temper expectations among sellers who are listing their luxury homes during this oil downturn. Real estate agents say they are seeing luxury home prices come down between 5 percent to 10 percent in some submarkets.

“It’s not a huge decrease, but we’re talking to sellers now about having to adjust their expectations,” Burns said. “You’re not going to have buyers standing in a row right now.”

Some buyers are wading into the murky economic waters however, hoping to score a good deal on a luxury home, Realtors said. Buyers want to take advantage of the low interest rates and slowing housing market.

“There are still buyers out there excited about finally being able to buy a home at prices that appear to have come down,” Bernstein said. “Many buyers who weren’t able to contract for a home before (during the energy boom) are coming back into the market.”

Realtors are now preparing to attract these bold buyers and encourage them to open their wallets and purses. Agents are putting more emphasis on marketing, beefing up their online presence, spiffing up their print brochures and running more advertisements in the Texas Medical Center area and the Katy freeway to capture the medical buyers.

Houston’s housing market, like the energy sector, goes through economic ups and downs. And like the oil industry, which has upstream and downstream sectors, the real estate industry can switch between entry-level homes and high-end home markets as the cycles change. The key for residential brokerages is to stay diverse.

Houston’s luxury home market may be slowing down, but when oil prices rebound, the high-end market will roar back to life, Realtors said.

“In my 32-year career, I’ve experienced several downturns, and historically, when the market comes back, and it always does, it comes back with a vengeance,” Bernstein said. “This little period right now is the calm before the storm.”

“Nobody is panicking, because oil is going to come back up again,” Burns added. “And when it does, these companies are going to be screaming and hollering how they don’t have enough personnel and they’ll be more hiring. Homes will always be strong in Houston.”

By the numbers

1,390 — The number of luxury homes listed in Houston between January and October 2015.